* Finmin Kan: Stable China growth desirable for Japan
* Kan says expects frank G7 debate instead of document (Adds details, background)
By Leika Kihara
TOKYO, Feb 2 (Reuters) - Group of Seven finance leaders may discuss the Chinese yuan and President Barack Obama's financial regulation plan when they meet in the Arctic Canadian town of Iqaluit this weekend, Japan's finance minister said.
China has come under heavy pressure from the G7 leading nations to revalue its currency, which some economists say is kept artificially low, giving it an unfair export advantage and hindering more balanced economic growth.
Tokyo believes that a more flexible yuan is desirable but has been more reserved than its G7 peers in its criticism of China's currency system on the view that pressuring Beijing won't work.
"We'll deal with this issue based on our understanding that stable economic growth in China is desirable for Japan," Naoto Kan told a news conference on Tuesday.
Kan, who took over as finance minister last month, had earlier said he would closely watch any G7 debate on the yuan as it could affect Japan's economy, which is heavily reliant on exports to fast-growing Asian nations like China.
Canada has said the G7 may discuss the need for a more flexible yuan, among other topics, at the meeting that it will host on Friday and Saturday.
But the G7 has little leverage with China, which sits at the larger G20 table of industrial and emerging powers. The G20 has been overtaking the G7 as the prime forum for global economic matters.
Beijing has continued to shrug off pressure from its major trading partners to let the yuan appreciate, repeating its line that stability is in everybody's best interests.
Kan said participants at the Iqaluit meeting, which will be his first G7, will also discuss bank regulation and the global economy.
"There will be a lot of topics, but we will probably discuss President Obama's financial reforms and see what each country has to say about that," Kan said.
"We're also likely to talk about the global economy, which has recovered from the Lehman shock, but has left many countries with fiscal burdens."
Kan added that he expects the meeting to focus on a "frank exchange of opinions" rather than document crafting.
The G7 finance leaders are unlikely to issue a joint communique this time, after they agreed at the previous meeting in Istanbul last year to make the G7 a more informal forum of debate.
Ministers gathering in the small Arctic town are expected to spend some time discussing the future of the G7, including reducing the number of times they meet each year. (Additional reporting by Stanley White; Editing by Chris Gallagher)